IRS Issues Guidance on Loan Modifications

The IRS issued the current debt modification regulations under Regs. Sec. 1.1001-3 in 1996 in response to the Supreme Court’s decision in Cottage Savings. 4 In Cottage Savings, a savings and loan institution sold interests in an underlying pool of mortgages and purchased comparable interests in a different pool of mortgages from a different lender. The purchased mortgages were relatively close in value to those in the original pool, but had different obligors and collateral.

Loan modification is a procedure for changing the terms of your mortgage loan so that it creates affordable payments. For example, your lender might agree to extend the life of your mortgage loan or add your past due amount onto your principal to bring your mortgage current.

Potential Priority Guidance What are the issues the IRS is looking at for this guidance? Can Rev. Rul. 70-540 Situation 3 be conformed with the later guidance? Can we develop an overall theory for these fees for uniform application? How to solve the ‘ticking fee’ question?

HAMP Loan Modification Calculator Our white paper, Fundamentals of accounting for debt modifications and restructurings, addresses the borrower’s accounting for the modification, restructuring or exchange of a loan. The primary decision points considered by the borrower in accounting for the modification, restructuring or exchange of one of its loans are captured below:

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Example 1 – Modification of a Fixed Rate Mortgage: A Rate Reduction with a Corresponding Change in Payment Schedule or Institution of a Stepped-Rate Feature that does not result in an increase to the APR (No new money). Truth in Lending Act (TILA) (Regulation Z) – While Regulation Z does not provide specific guidance for when new disclosures are required, some general guidance is provided.

Servicer Loss Mitigation Letters on Delinquent Loans PURPOSE: This circular provides guidance and instructions to mortgage loan servicers concerning servicer collection letters on Department of Veterans Affairs (VA) guaranteed home loans to delinquent borrowers in accordance with Title 38, Code of Federal Regulations (CFR) 36.4350.

Does it hurt a borrower’s chances when applying for an FHA mortgage loan if there’s a debt owed to the federal government? Can unpaid federal taxes become a barrier to an FHA mortgage loan? The FHA recognizes two types of circumstances-tax debt and non-tax debt.